The Weekly Winston: Fiscal Cliff Edition

Everyone supposes that supply-side economics was a purely American phenomenon, with its antecedents going back to Calvin Coolidge and his tax-cutting Treasury Secretary Andrew Mellon and ending up with the Laffer Curve. And of course Ronald Reagan liked to quote John F. Kennedy on the wisdom of income tax rate cuts, much to the consternation of good liberals today.

But in fact Churchill was part of the early supply-side revolution, arguing for—and succeeding—in reducing Britain’s high wartime income tax rates when he was chancellor of the exchequer in the 1920s. From one of his speeches in the House of Commons, from May 1925:

I believe most firmly that the rate of direct taxation upon income was producing a chill and a check upon the enterprise and upon the conceiving energy of the country to an extent certainly far higher than in any other country in the world, and far more heavy in its effect than in any other country in the world. Yet this country, where direct taxation has reached unprecedented and unparalleled dimensions, is also, we find, the country where, at the other end of the social scale, this extraordinary phenomenon of unemployment has manifested itself in the most distressing form. It is said by some that there is no connection between the two. The theory of the hon. Gentlemen opposite is that, the more taxes you pile upon wealth, the greater the benefit to the working classes. Our theory is exactly the opposite, and we are prepared to confront you, not only with continuous argument on that subject, but we hope, having three or four years of power and authority, to confront you with the proved results of the opposite theory.

The hon. Gentleman spoke about the relation of the rate of Income Tax to unemployment. He said, “How foolish it is to imagine that by reducing Income Tax you improve employment.” The fact, however, is that the country with the highest rate of direct taxation is also the country with the highest unemployment. That is the fact. It may be a coincidence. But when the Income Tax was reduced by 1 shilling and then by 6d., there was a great improvement. When the Income Tax was 6 shillings in the Pound there were over 2-1/4 million persons unemployed. Now that the Income Tax has been reduced to 4 shillings 6d. in the Pound that figure has fallen to 1-1/4 million people unemployed. . .

I think, in the time at our disposal, we shall succeed in establishing the soundness of the grounds on which we have acted, and the results which will be effected in the general life of the country by three or four years of steady policy from one broad point of view will be sensibly appreciated by all classes in the State.

Still another reason why Obama doesn’t want that Churchill bust around the Oval Office to remind him of what a real statesman is like.